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WeChat, the shape of the connected China

Impressive, intriguing China is all too often dismissed as a source of inspiration for being “too different”. Yet over the past decade, China has undergone unprecedented change as a result of the implementation of protectionist economic policies. No longer the world’s sweatshop, the country is now the international epicenter of technological research & development.

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January 2019
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-
Stéphane Distinguin
Founder & CEO
of FABERNOVEL
ince 2006 FABERNOVEL has been producing annual studies which are accessible to all, thus
completing one of its missions: to contribute to the understanding and accessibility of the digital
revolution. They are an opportunity to go further and deeper in the exploration of the latest innovation
topics, and give their readers the ability to take a step back and to really observe the digital age.
By developing clear frameworks, they help in deciphering today’s biggest recipes for success which
worked for the GAFA, unicorns and Chinese giants. The aim is to analyze all the competitive dynamics
of this new economy, its performance factors and its development strategy.
After Uber in 2017 and Tesla in 2018, we’ve decided to dedicate this year’s annual study to the analysis
of the WeChat phenomenon. More than ever, the model’s applicability and exportability raises
questions – while a slowed-down Chinese growth in 2018’s third trimester (6,5%!), and a trade war with
the US, has got some observers worried.
S
Foreword
-
From “Made in China” to “Designed in China”
-
of global patent
applications in 2016.
of the world’s VC funding in the first half of
2018. For the 1st time, China has overtaken the
U.S. in startups fundraising
of the world’s unicorns total valuation,
behind the US (49% of the total). 3 chinese
unicorns among the top 6.
Shanghai: explicitly aims to become
a global centre for both financial services
and technological innovation.
Key players: Mobike, Lufax, Pinduoduo
Beijing: headquarter of 40 unicorns
and said to be the “best startup environment
in China” with numerous investors and VCs.
Key players: Baidu / Didi / JD.com / Xiaomi /
Lenovo / OFO / Toutiao
Shenzhen: the “Silicon Valley for
hardware” due to the proximity of tech
firms in southern Guangdong province.
Key players: Tencent / Huawei / DJI
(drone)
Hangzhou: symbol of China's ongoing transition
from a manufacturing centre to a technology
and service-based economy.
Key player: Alibaba
The Chinese powerhouse is
driven by dynamic
metropolitan hubs
Sources: Marketing to China, FABERNOVEL estimations, JLL, WIPO, KrAsia, CB Insights
⅔
47%
26%
China has nurtured homegrown digital champions...
-
The Great Firewall has allowed China to forge
its own path in terms of technology
China has developed a “digital protectionism” policy to prevent
foreign competitors from jumping into the Chinese market
and preserve its Internet sovereignty.
Sources: Sloan Review, Forbes, Council on Foreign Relations
A Master Plan to take leadership in design,
software and production
In 2015, China launched a strategic 10-years plan called “Made in China
2025”, in order to target a leadership position in key technologies and
industries of the future.
China 2025 sets ambitious targets: 70% “self-sufficiency” in high-tech
industries by 2025 and a dominant position in global markets by 2049.
Amazon
Google
Uber
Facebook
Apple
Best Buy
Alibaba
Baidu
Didi
WeChat
Xiaomi
JD.com
We should respect the right of individual countries
to independently choose their own path of
cyber-development”
Xi Jinping, president of the People’s Republic of China
at the World Internet Conference (2015)
Great Firewall
“
… and these champions are now deeply inspiring to the Western leaders
-
I look at some of the things we are
innovating and doing here in China.
We are going to leverage those learnings
to apply them in other parts of the world,
including the US.”
* From collaboration with Alibaba
Kevin Johnson
Starbucks’ CEO
China:
Lab of the mobile
innovation
The pace of innovation in China
is faster than in any other part
of the world.
Some of the most prominent
American brands have started to
copy what has been a success in
China.
“

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WeChat, the shape of the connected China

  • 2. It is licensed under the Creative Commons BY-NC-SA license to allow for further contributions by experts and users in the coming months. You are free to share and remix / adapt the work. You must cite this document: WeChat, the shape of the connected China, January 2019. You may distribute a modified work under the same or similar license. You may not use this work for commercial purposes. Why do we release this kind of work for free? Our job is to help large organizations think and act like startups. We believe this can only be achieved by encouraging people to innovate and explore new business models. We aim to inspire you by giving you the keys to understanding new markets, new business drivers like APIs or successful companies like Apple, Amazon, Facebook or LinkedIn. This work was made for you to share, reuse, remix, rework… -
  • 3. Stéphane Distinguin Founder & CEO of FABERNOVEL ince 2006 FABERNOVEL has been producing annual studies which are accessible to all, thus completing one of its missions: to contribute to the understanding and accessibility of the digital revolution. They are an opportunity to go further and deeper in the exploration of the latest innovation topics, and give their readers the ability to take a step back and to really observe the digital age. By developing clear frameworks, they help in deciphering today’s biggest recipes for success which worked for the GAFA, unicorns and Chinese giants. The aim is to analyze all the competitive dynamics of this new economy, its performance factors and its development strategy. After Uber in 2017 and Tesla in 2018, we’ve decided to dedicate this year’s annual study to the analysis of the WeChat phenomenon. More than ever, the model’s applicability and exportability raises questions – while a slowed-down Chinese growth in 2018’s third trimester (6,5%!), and a trade war with the US, has got some observers worried. S Foreword -
  • 4. From “Made in China” to “Designed in China” - of global patent applications in 2016. of the world’s VC funding in the first half of 2018. For the 1st time, China has overtaken the U.S. in startups fundraising of the world’s unicorns total valuation, behind the US (49% of the total). 3 chinese unicorns among the top 6. Shanghai: explicitly aims to become a global centre for both financial services and technological innovation. Key players: Mobike, Lufax, Pinduoduo Beijing: headquarter of 40 unicorns and said to be the “best startup environment in China” with numerous investors and VCs. Key players: Baidu / Didi / JD.com / Xiaomi / Lenovo / OFO / Toutiao Shenzhen: the “Silicon Valley for hardware” due to the proximity of tech firms in southern Guangdong province. Key players: Tencent / Huawei / DJI (drone) Hangzhou: symbol of China's ongoing transition from a manufacturing centre to a technology and service-based economy. Key player: Alibaba The Chinese powerhouse is driven by dynamic metropolitan hubs Sources: Marketing to China, FABERNOVEL estimations, JLL, WIPO, KrAsia, CB Insights ⅔ 47% 26%
  • 5. China has nurtured homegrown digital champions... - The Great Firewall has allowed China to forge its own path in terms of technology China has developed a “digital protectionism” policy to prevent foreign competitors from jumping into the Chinese market and preserve its Internet sovereignty. Sources: Sloan Review, Forbes, Council on Foreign Relations A Master Plan to take leadership in design, software and production In 2015, China launched a strategic 10-years plan called “Made in China 2025”, in order to target a leadership position in key technologies and industries of the future. China 2025 sets ambitious targets: 70% “self-sufficiency” in high-tech industries by 2025 and a dominant position in global markets by 2049. Amazon Google Uber Facebook Apple Best Buy Alibaba Baidu Didi WeChat Xiaomi JD.com We should respect the right of individual countries to independently choose their own path of cyber-development” Xi Jinping, president of the People’s Republic of China at the World Internet Conference (2015) Great Firewall “
  • 6. … and these champions are now deeply inspiring to the Western leaders - I look at some of the things we are innovating and doing here in China. We are going to leverage those learnings to apply them in other parts of the world, including the US.” * From collaboration with Alibaba Kevin Johnson Starbucks’ CEO China: Lab of the mobile innovation The pace of innovation in China is faster than in any other part of the world. Some of the most prominent American brands have started to copy what has been a success in China. “
  • 7. WeChat figures cause vertigo - WeChat is the largest community of users and consumers in Asia. In only 7 years, WeChat has became a key player on the global tech scene: 433 Days To reach 100 Millions users vs. 1,650 days for Facebook Sources: CAICT, WalkTheChat 92% Penetration rate in its first domestic market - China vs. 63% for Facebook in the US 34% Of total mobile network traffic in China vs. 14% for Facebook in the US. 20.3M jobs WeChat helped to create in 2017 +1M Mini-programs since the launch in 2017 vs. 2.1M for App Store Main social media communities in Q3 2018 ranked by MAU MAU(Million)
  • 9. WeChat is leading the “super app revolution” in Asia - Our phone VS 3 main ingredients of a Super App: 1. A unique access point 2. Seamlessly integrated ecosystem 3. Its own payment solution The promise of a Super App is clear: One tap away from everything Super apps mix and match a bunch of seemingly unrelated services together in one application” Connie Chan General Partner at Andreessen Horowitz SUPER APP SUMMIT A Chinese one “
  • 10. WeChat’s official accounts Launched in 2013. 3,5M active accounts in 2017 for 20M registered iMessage’s Apps Launched in 2016 WeChat’s Wallet Launched in 2014 Messenger’s bots Launched in 2014. 300k monthly active bots in 2018 Western tech leaders have started to copy it - Everyone in the Western world has experienced WeChat’s work, as the service has inspired a new category of “messaging as a platform.” You don’t have to look hard to see hints of WeChat in other messaging platforms such as Apple’s iMessage or Facebook’s Messenger platform” Anu Hariharan Partner at Y Combinator (2017)“
  • 11. One app, 5 strategies - Pivoting at scale Smartphone is not a channel, it’s a lifestyle Value is a dynamic balancing Network size is the new chic WeChat is eating the world
  • 12. 1Don’t be afraid to auto-cannibalize your business Don’t be afraid to mutate
  • 13. Back to 2010, Tencent was a well-established company - The overall economic environment in China was very promising: Tencent overall results were outstanding: new internet users in China every month 10 million Sources: Worldbank, China Internet Watch, Macrotrends, Tencent annual report Tencent’s activities were thriving: +10.6% GDP growth of China Tencent revenues evolution between 2007 and 2010 3rd biggest internet firm by market cap ($36bn) after Google and Amazon Tencent was dominating the instant messaging Chinese market: x5 QQ’s penguin was an integral part of Chinese popular culture 650 million active users on QQ Messenger
  • 14. WhatsApp USA, 2009 Kik Canada, 2010 Line Japan, March 2011 Kakao Talk South Korea, 2010 Facebook Messenger USA, 2011 New contenders were entering the game, both outside and inside China. Tencent was a latecomer in this race. At the very beginning, all these instant messaging apps had the same value proposition. It would be a winner-takes-all battle as messaging apps are all about timing and network effect. Feixin China, 2007 MiTalk China, 2010 TalkBox China, January 2011 Source: RedTech Advisors The mobile chat apps’ race Tencent understood the inevitable rise of a new world -
  • 15. How did they manage this strategic dilemma?
  • 16. What did Tencent do? Basic design thinking & horizontal diversification - Pick your champion after an internal tournament… Such initiatives was faithful to the ‘horse race culture’ or saima: putting several teams to attack the same challenge … and looking closely at alternatives In early 2011, when WeChat was struggling among the Top 100, its major competitor Talkbox was listed #1 on the social network app chart thanks to its push-to-talk feature. Tencent’s executives even made an offer to buy Talkbox as they did not want to bet solely on WeChat’s uncertain success. With the WeChat 2.0 version of May 2011 and the release of the same push-to-talk feature, WeChat jumped from top 100 to top 5 within a single day. Sources: SCMP, Abacus The winning project was granted generous financing to continue its project 70 daysOct. 2010 Jan. 21st Wechat’s daily user growth < 20,000 > 50,000 Before 2.0 version After 2.0 version
  • 17. Leveraging existing assets to accelerate momentum - In May 2011, WeChat started to leverage its massive QQ user base: account creation was made possible through a QQ ID. Having a single login ID was much more convenient. With the 2.1 version of July 2011, WeChat users were able to automatically import their QQ contacts into WeChat. Endgame In November 2011, WeChat reached 50 million users and overtook Xiaomi’s MiTalk as the first instant messaging app in China. In order to ensure good pick-up rates, WeChat smartly chose the right timing to carry the QQ and WeChat integration. Following, the network effects took their lead: as contacts were integrate and users joined the app, the interest and awareness raised amongst their respective contacts.Network effect
  • 18. Differentiating QQ to avoid inside competition - WeChat’s incredible expansion did not kill QQ. It was adapted to serve different needs QQ has repositioned itself to be a colorful “one-stop entertainment portal” and fills-in WeChat’s gaps: you don’t need a mobile number to sign up for a QQ account, a good option for young students without any mobile phone. Addressing specific users In 2018, QQ’s demographic is still very young: 60% of all QQ users were born after 1990, 40% are students. Hence, QQ has teen-friendly features like avatars, animations and cartoon characters. With two strategic levers: GamingVideo In 2017, launch of QQ Light Application: a mini program-like platform, focusing on casual games and e-books. In 2016, launch of a very popular short-video service called Riji (or “Daily Footprint”) to let users upload temporary video clips less than 10 seconds long.
  • 19. Know how to impose your own experience standards
  • 20. A day in the life of Xiaolei, powered by WeChat Persona: Name: Xiaolei Age: 32 years old Profession: Head of Marketing in a Furniture company Description: Xiaolei lives and works in Shanghai, she uses WeChat in the same way as a typical city resident 7AM She checks the weather on a Mini Program and sees that the pollution rate is quite low today. Thankfully, there are a few bikes in front of her house, so she grabs one thanks to Mobike’s integrated feature. 8AM She needs her usual morning coffee, so she stops by Starbucks. The waiter invites her to subscribe to their new Official Account and use the ‘Shake’ feature to get a free cupcake. She scans the QR code to immediately follow it, and pays at the same time thanks to WeChat Pay. 8:30AM Xiaolei arrives at work, she logs on WeChat desktop, checks Beijing’s last meeting debrief on the Marketing group and asks her colleagues a few questions about it.
  • 21. 11AM Her client has just informed her by private message that he could not be present for their lunch. So she suggests to a group of friends to have lunch in the French restaurant they all like. She sends them the link through Meituan Dianping’s Mini Program so they can directly order from the menu before they arrive. 12PM Xiaolei is a little bit late and won’t have time to go the restaurant by bike, so she books a taxi directly from WeChat thanks to Didi’s native feature. 1PM She arrives at the restaurant and gets her meal 5 min after her arrival. She pays the bill for everybody and asks her friends through a voice message to reimburse her via WeChat Pay. She directly receives the money on her Wallet.
  • 22. 5PM She buys hiking clothes on JD.com’s Official Account before buying her flight ticket to Taiwan. Unfortunately, her visa isn’t up to date anymore, so she goes on the Public Service native feature to get a new one. 7PM An alert informs her that today is her nephew's birthday. Xiaolei sends him a red envelope as a gift. She also takes this opportunity to also send one to her grandmother to thank her for the last weekend's lunch. 9PM Coming back home, Xiaolei posts pictures of her diner on Moments, restricting access only to her close friends. WeRun’s notification informs her that she won the daily contest by having done 23,000 steps. It automatically donates 2 yuans to charity.
  • 23. How did WeChat become a way of life in China?
  • 24. “ Being a product creator is like being in a relationship with the users. Otherwise, it’s only a business transaction. Product managers must have big hearts” Allen Zhang founder and CEO of WeChat Weibo post 2011 From customer centricity to customer obsession -
  • 25. Red envelopes: more than a feature. A tradition reinvented. - It was really impressive! This year’s Pearl Harbor attack was indeed beautifully planned and executed” Jack Ma Chairman of Alibaba Group A few elements greatly boosted the user pick-up of this new feature: 1/ Attaching a feature to a preexisting usage and cultural context (numerology, red = lucky color) 2/ Specific features betting on gamification, variable reward and group effect 3/ Promoting the feature among tight knit social circles and then extend the use to more distant circles like street merchants and online stores Source: YCombinator In 2014, WeChat digitalized the Red envelopes and shook up an old tradition deeply rooted in the Chinese culture where people give each other red envelopes with money inside for anniversaries or other festive occasions. WeChat gifting during Chinese New Year “
  • 26. WeChat used every part of the buffalo - WeChat completely went away from the desktop development mode and exploited all possibilities offered by smartphones to build the first massive mobile-only app. Native american hunters maximized the buffalo’s potential. There was no waste as all the parts of the animal was either used as nutrition or reused. Designing a mobile-only service means making the most of all the sensors and capabilities that a smartphone can offer. Sources: Connie Chan (a16z) “Smartphone is the third hand for humans” Allen Zhang
  • 27. Shaping new national experience standards: QR code - The Quick Response system (QR code) became popular outside the automotive industry in Japan in 1994. Massively promoted by WeChat from 2012, the QR code truly became the tipping point for China’s online-to-offline frenzy. Social interaction People no longer have business cards, they directly scan their QR Code to connect Marketing Good way for brands to interact with their customers, promote official accounts and collect relevant data Payment Simplification of payment transactions for both customers and sellers: a cashless society SCAN ME QR codes scanned every day with WeChat Sources: YCombinator, MIT technology Review, China Channel Access to information Sending web links or making online searches have been replaced by QR codes 80 million For Tencent’s CEO Pony Ma, a QR code is a “label of abundant online information, attached to the offline world”. It has reshaped many aspects of the Chinese society: $6,000Bn Mobile payments generated by WeChat Pay in 2017 Vs. $450Bn for Paypal The entry point for PC internet is the search box. The entry point for mobile internet is the QR code” Allen Zhang founder and CEO of WeChat, 2012 “
  • 28. Shaping new national experience standards: ‘Shake’ - ‘Shake’ GPS + Accelerometer + Bluetooth At first, it was made for people to randomly find a person to chat with. ‘Shake’ is one of WeChat’s early features that has become a characteristic of the app. → The ‘Shake’ functionality is so successful that it has been completely integrated in the Chinese society as a whole. People shake to get information, coupons, special offers or free samples. Afterwards, this functionality allowed users to find nearby stores and interact with many connected physical elements. iBeacon Device Coupons Payment Followers Social Sharing Offline Retails Woman using WeChat Shake functionality in Metro shop in Shanghai
  • 29. WeChat keeps shaping tomorrow’s lifestyle - In the same way, Tencent moved from the PC-world to the mobile world, the future of WeChat is likely to turn into an intelligent interaction medium. This move is part of the Tencent strategy to expand into the industrial internet. WeChat will soon introduce a Siri-like digital assistant named “Xiaowei” that will be linked to a myriad of Tencent’s services, as well as mini-programs run by third parties. At the heart of intelligent connected vehicles As a personal home assistant (like Alexa and Google home) It’s undeniable that at some point in the future we will stop looking at this small screen in our pockets” Matthew Brennan China Channel Integrated across all sorts of connected devices (IOT) “
  • 31. A customer hires a product to do a job - In essence, WeChat is a digital Swiss Army knife, a personal life assistant. As a lifestyle tool, WeChat is here to help users improve efficiency, rather than let users waste time in its ecosystem. For mini-programs, WeChat has adopted a designer approach by reducing the time required to complete an action. People do not want a quarter-inch drill, they want a quarter inch hole” Theodore Levitt Marketing professor at Harvard Business School Wallet is the key feature to build a ‘super app’ model Seamlessly integrated ecosystem of services A unique access point One-click payment solution Source: Ben Thompson “ Source: Ben Thompson
  • 32. How did WeChat succeed in addressing every problem while remaining consistent?
  • 33. Enabling seamless experiences by shortening path to services - • Go to an app store • Download Mobike’s app (cross fingers for internet connection) • Delete apps or contents to have more space • Open Mobike’s app • Create a user account • Login • Add your credit card • Scan the bike’s QR code • Enjoy your ride • Be billed • Open WeChat • Launch the mini-program (or scan a QR code) • Scan the bike’s QR code • Enjoy your ride • Be billed 10 min Use the service Mini-programs are basically an app-store within an app which transforms WeChat into a mobile operating system. It took Apple 6 years to get 1 millions apps, WeChat only needed 1,5 years DAU of mini-programs as of October 2018 10 sec Use the service In the West Meanwhile in China Source: 31Ten of the user traffic coming from mini-programs, mostly through P2P sharing
  • 34. What I do on What I do on What I do on Platforms like Facebook or Toutiao monitor the time spent on their services: the more users spend time on the service, the more money they get through ads. As a consequence, their newsfeeds are AI-driven to optimize the content and user retention. Metrics / KPI Lever for growth Scroll, scroll, scroll... Scroll, scroll, scroll... Use and go Mean Advertising is not the only way to be profitable - Efficiency is more than a marketing positioning; it is at the core of WeChat KPIs. WeChat thrives to stay a productivity tool with a unusual approach: newsfeed is a pure experience of peer-to-peer sharing and recommendations (messages, pictures, official accounts, mini-programmes). Maximize attention and time spent Artificial intelligence Not yet connected individuals or companies. Launch of new sticky features Not yet connected individuals or companies. Launch of new sticky features Not solved pain points for individuals and companies. Answer to new JTBD Maximize attention and time spent Jobs done Artificial intelligence UGC and sharing
  • 35. Within WeChat, value created is equally distributed - WeChat redefines interactions on both B2C and B2B side and controls the UX provided by third party players, in order to ensure long term growth of the whole ecosystem. WeChat Users Business partners An equilibrium to find in order to preserve all the stakeholders: The barycenter of value “User’s social graph brings huge potential benefits” “Commercialization should not contradict user value and experience” “We don’t only want to make it a pure traffic site, but also gradually come up with more creative and interesting things out there” WeChat is paying great attention to its users and incentivizes the ecosystem to follow design rules established by Allen Zhang himself. Source: Allen Zhang
  • 36. Commercialization should not contradict user value and experience - Sources: Morgan Stanley, Fool, China Tech Insights Report, Statista, The Motley Fool 17%* Payment and cloud WeChat shows only 2 ads per day vs 1 ad every 10 posts on Facebook. Ads from WeChat feed generate 93% less revenue than Facebook’s daily active user. 18%* Ad * Of Tencent’s revenues 65%* In-app items WeChat x Users “Ads in the messaging window was never a viable option for us, unlike our friends at Google or other companies.” David Wallerstein Tencent CXO WeChat accounts for 70% of these revenues, through mini-programs and WeChat Pay. Not pushing too much ads is a strategic decision to ensure WeChat is about usefulness and task completion, and not another advertising platform. WeChat is the backbone of Tencent WeChat is like a distribution platform giving access to a range of Tencent services.
  • 37. User’s social graph brings huge potential benefits - Sources: JD.com, Curiosity China, Walk the Chat A Spark Program to support third parties A $15 million fund launched in 2016 WeChat x Partners WeChat aims at making business partners better at delivering their user experience so that end-customers feel happy to stay in WeChat’s ecosystem. Efficient tools to manage communities on WeChat A social CRM based on official accounts & mini programs $1,500 gift packages given to boost growth of small service providers. The Spark Program will support service providers in terms of operating, material and technical expenses. The incentive plan covers a wide variety of industries including catering, retail, tourism, or transportation. Xiangqi Youxuan Xiangqi Youxuan’s e-commerce mini program is operated by a small team of only 22 people. On their first participation to Single Day (11/11), and thanks to WeChat’s CRM tools, they reached 1.5 billion RMB sales (around $220M)! WeChat is a very complete CRM tool. It offers countless possibilities for brands to manage communities and enhance engagement. User data can be collected are synchronised easily on WeChat Analytics platform.
  • 38. A creativity-centric model that has changed the language of product marketing - WeChat works on virality. To emerge, a brand, a service or a product must be shared with friends. Due to the fierce competition and the restrictive amount of ads on WeChat, brands must show high level of creativity to create engagement, especially in retail and luxury. Sources: Marketing in Asia, Jing Daily Coffee box Consumers could design and operate their own online coffee shop and sell coffee to their friends. The coffee was then delivered right to the friend’s doorsteps. Breitling In a gamified H5 environment, users could receive a phone call from Daniel Wu, which lead them to explore the new brand message and signature products. This generated a high social buzz with more core fans and engagements on the organic content. Users x Partners
  • 39. WeChat captures value where it creates it - Sources: Quartz Tencent has set in place a balanced business model to increase user base, as well as business acquisitions and retentions: WeChat users Third parties Capturing user’s qualified data enables WeChat to attract third parties (services + ads) Third parties bring traffic and relevance for WeChat. They develop services that boost the use of WeChat Pay Third parties can connect with more than 1 billion qualified users logged in with their bank account Users have access to an increasingly offer of useful and seamlessly integrated services Value Capture Value Creation
  • 41. WeChat, the perfect business springboard - Chinese group-buying platform Pinduoduo uses WeChat’s traction to grow. It’s the fastest growing e-commerce business in a highly competitive sector thanks to mini-programs: between March 2017 and August 2018, Pinduoduo MAU have increased from 3% to 31% of Alibaba MAU. The company was founded in September 2015 and went public at a $24B valuation. Pinduoduo is a member of WeChat’s holding company (18,5% of PDD’s stakes). Source: WalkTheChat “By rolling so many functions into one single app, WeChat has changed the definition of virality. It’s no longer images or tweets, or videos that can go viral, it can be a business. The aligned incentives of Tencent mean all businesses get the potential benefits of a user’s social graph.” Viktor Makarsky Entrepreneur, CEO of Menu3 Users can invite friends to use Pinduoduo in exchange for cash. Once enabled, payments can be done without password Pinduoduo activates by default “automatic payments” Pink is the price to buy directly, red is the price to group buy?
  • 42. How did Tencent use WeChat as a playground to set its domination?
  • 43. Share your audience - Through APIs, companies can give external businesses access to dedicated functionalities and assets. WeChat goes beyond: it shares its existing user base with brands and businesses. In the internet economy, what matters is direct customer connections. The objective of Tencent is not to take control over companies but to take control of the distribution of the service. This strategy is a way to aggregate even more traffic within its app, in order to become a one-stop shop for any service. This is the secret of so many chinese companies: sharing their user base and sharing their traffic to retain mind share and relevance” Connie Chan Partner at a16z “ Sources: Ben Thompson
  • 44. Pick your champions - WeChat is a framework in which businesses can grow and prosper WeChat picks up the best service providers and adds them into available slots on its wallet. Being directly available on WeChat's wallet is like being featured on the front page of a magazine: there are Wallet's featured services... and the others. Online shopping - collaboration with JD.com (marketplace, takes 15% of shares), Mogujie (women's fashion), Vipshop (flash sale) … Use a shared bike - collaboration with Mobike (raised $600 million in a round led by Tencent) Find information and read review about local small business - collaboration with Meituan Dianping (Tencent owns a fifth of Meituan) Book railway tickets and flights: Collaboration with the national railway company Ride hailing - collaboration with Didi (in 2014, after investing $115M) Buy movie and theater tickets - collaboration with Panda movie Book hotels - collaboration with LY.com and eLong.com (16% in 2011) Due to its position – meeting point between users and suppliers – WeChat is in a privileged position to spot promising business and make the best of them succeed. Sources: FABERNOVEL’s analysis
  • 45. Ecosystem growth is the measure of real leaders… and their best weapons - Tencent is not only service provider, it is an ecosystem builder that re-organises competition: Tencent picks out excellent startups and fosters these companies as its ‘descendants’* to ensure its long-term domination over competition.* Source: Bernstein Research *Quote: Yingzi Yuan Tencent creates value by connecting to its ecosystem the startups that it backs.” Nicolas Du Cray Partner at Cathay Innovation # of unicorns backed Source: CB insights The Softbank of China 65B$ have been invested by Tencent in 350 companies since 2012. Thanks to these investments, WeChat is able to better fight competitors, such as Alibaba, which wages war against WeChat for traffic and customer acquisition. “ Source: Jiguang data (jiguang.cn) WalktheChat Analysis 28 25 11 0 1 1 5
  • 46. “ Chinese and Western companies tend to have a dramatically different approach to expansion. In a few words: Western companies build products, while Chinese companies build ecosystems.” Thomas Graziani Co-founder, WalktheChat GAFA defend their castle whereas BATX expand on many verticals - The purpose of Chinese investments is to build a system of allegiance to the group. After receiving investment, the company will have to ingrate with the ecosystem of the group and reject the competing ecosystem. Sources: WalkTheChat
  • 47. Voice assistants are killer devices for many brands, particularly for retailers. If the technology is important to attract users and developers, the main difference lies on the integrated ecosystem that the users will have access to. “Digital China is mostly a team sport” Jeffrey Towson Expert on Digital China and Digital Competition Your ecosystem is your value -
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  • 49. Foreign expansion is a hard nut to crack - Strong competitors already in place Entering mature markets is difficult, especially in the case of an instant messaging app, where the network effect plays a major role. Weakened value proposition abroad Introducing new markets without building the ecosystem upstream, leads to a decrease in the attractiveness of the app. Users didn’t have access to the Wallet and all functionalities that make the value of the Super App. Different Culture WeChat is very Chinese-centric product. Efforts to adapt to local cultures have not been sufficient, creating a discrepancy between users’ expectations and Wechat offer. A global marketing campaign was launched in 2013, introducing a lighter version of Wechat in 15 countries. It failed for 3 reasons: As American companies have learned in China, products that work well at home sometimes get lost in translation.” Emily Parker MIT “
  • 50. WeChat reaches a growth cap in China and competitors are emerging - Social Byte Dance Content platform launched in 2016, it now has more than 500m users worldwide Payment Alipay 54% market share in China, vs. 40% for WeChat Pay Competitors are coming from everywhereWeChat already have most of Chinese users 92% penetration* Super App Meituan-Dianping Launched as a food-delivery platform, it’s diversifying its services *In Tier-1 cities Source: SCMP
  • 51. What strategies WeChat chose to expand globally?
  • 52. Replicating the entire model in relevant markets - Grow end-user base Grow B2B partnerships Launch WeChat Messaging only Connect businesses and users through WeChat Pay WeChat ecosystem Time By conquering new markets this way, WeChat is able to extend its user base: 93% of penetration rate in Malaysia* WeChat has been launched in 2012 as an Instant Messaging app. Since the activation of WeChat Pay in 2018, the value proposition is similar than in China. # of Users # of Merchants Critical mass South-East Asian countries are particularly WeChat-compatible markets. *WeChat active users/ total internet users Source: FABERNOVEL’s estimation
  • 53. Capitalizing on Chinese diaspora to increase revenue through WeChat Pay - WeChat is not looking to replicate the same business model in the West. WeChat has already reached the threshold of 1 billion users. WeChat’s goal is not to expand the number of users now, we have to think about providing services for existing users.” Allen Zhang Founder and CEO of WeChat Instead, its focus will be on bringing international brands to its platform to sell more to the Chinese, alongside services for Chinese travellers abroad. Annual overseas visits Total outbound trip expenditure Billion, $ “Source: Chinese Tourist News
  • 54. WeChat Pay is WeChat’s beachhead - 49 countries where WeChat Pay is available 18 currencies Where can you pay with WeChat Pay in 2018?
  • 55. What are you waiting for? For a private presentation, please contact: client_office@fabernovel.com For media inquiries, please contact: medias@fabernovel.com
  • 56. Audrey Da Cruz Benoît Talabot Joachim Martin Marina Dislich Zineb Akharraz Torikian Paris-based team Nicolas Cabanes Guillaume Gombert Valentin Le Blan Tom Morisse Shanghai-based team Rachel Daydou Xiaolei Gu Patrice Nordey Jingjing Shen Research Communication Design Special thanks to industry experts Matthew Brennan Founder of China Channel Nicolas Du Cray Partner at Cathay Capital